Is a Lease-Purchase (Buying A Home On Contract) Program Right for You?

Non-traditional home buying options make it possible for first time buyers, credit challenged buyers or economically-strapped home buyers to own their own homes. And a lease purchase option is one of the most common non-traditional financing options. But this type of program isn’t a great option for everyone. Some people might be better served by waiting to buy and instead focusing on developing better creditworthiness, or by saving more money for a downpayment and a cash reserve. Here are some thoughts to consider as you ask: Is a lease purchase program right for you?

How Are Your Finances?

Many people who have trouble saving money for a downpayment turn to a lease purchase program because it essentially builds the downpayment into the purchase. When you sign a lease purchase contract, many sellers will credit a portion of your rent as a downpayment toward buying. But if your finances aren’t good otherwise, it may be a better idea to keep renting and work on improving your overall financial picture. Even if you don’t have all the money you’d traditionally need for a downpayment, you should have enough money for a cash reserve in your savings account, and to handle closing costs if you buy.

How’s Your Work?

Do you have steady employment? Is there any possibility of downsizing or any trend toward restructuring in your industry? Or does your work require you to move around periodically? If there’s any instability in your work, it might not be the best time to buy. Ideally, you want to be reasonably certain you’re not going to have to hunt for a new job when you buy. And if your work might transfer you or require you to move around the country any time in the next few years, buying could be a liability.

What Will Change in the Next Year?

Generally speaking, a lease purchase option is best for people who will be experiencing positive changes in the next year or the next few years. It’s great for people with upward mobility who expect to get promotions or raises soon. It’s good if you’re close to having the money you’ll need for a downpayment, or if you’re working on improving your credit. But if there aren’t positive changes on your horizon and you’re having trouble getting approved for traditional financing now, don’t assume that you’ll be able to turn things around in a year. You should have a plan for positive developments in the near future, or wait until things are more favorable for you to buy.